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Sydney House Price and Mortgage Repayment to Income Ratio 2002-2013
Topic Started: 3 Nov 2013, 07:00 PM (11,476 Views)
Shadow
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Evil Mouzealot Specufestor

As per the chart below, Sydney's house price to income ratio is currently where it was back in 2002, over a decade ago.

Posted Image

And the ratio today is still well below its peak 2003 level.

If Sydney's house price to income ratio returns to peak 2003 levels over the next few years, that would suggest a median house price close to $1 million.

Note that the chart is for freestanding houses to single income. The all-dwellings to household income ratio is around 6X rather than 9X.

Also important to note that interest rates are currently lower than they were in 2002-2003, so affordability (mortgage repayments to income) has improved quite a lot.

Sources... residex.com.au, abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/6302.0May 2013
Edited by Shadow, 4 Nov 2013, 10:58 AM.
1. Epic Fail! Steve Keen's Bad Calls and Predictions.
2. Residential property loans regulated by NCCP Act. Banks can't margin call unless borrower defaults.
3. Housing is second highest taxed sector of Australian Economy. Renters subsidised by highly taxed homeowners.
4. Ongoing improvement in housing affordability. Australian household formation faster than population growth since 1960s.
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Elastic
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Hey Shads I wasn't really following the Sydney property market in 2003 but could you tell me the reasons for the runup in prices at that time.
Was it an investor led boom or something else?
Cheers
Only a rat can win a rat race.

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Shadow
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Elastic
3 Nov 2013, 07:17 PM
Hey Shads I wasn't really following the Sydney property market in 2003 but could you tell me the reasons for the runup in prices at that time.
Was it an investor led boom or something else?
Cheers
There were several factors involved in the boom that began in the late 90s...

1. Financial deregulation and increased willingness of banks to lend based on dual incomes.
2. The move to a structurally lower interest rate environment after the high inflation 80s.
3. The 2000 Olympics increased demand and the general popularity of Sydney.

Investors were very active. By 2003, there were so many investors that the Sydney rental vacancy rate had jumped to nearly 5% (it is under 2% today).

Prior to the late 90s boom, house prices had been tracking incomes for a long time. The price/income ratio in 1996 was the same as it was in 1976, two decades previously.

The late 90s boom resulted in a one-time structural shift in price/income ratios as we adjusted to financial deregulation, increased willingness of banks to lend based on dual incomes, and the move to a structurally lower interest rate environment after the high inflation 80s. This structural shift had played out by 2003, after which time house prices just started tracking incomes again. I don't expect that one-time shift to a higher price/income ratio to be reversed unless the factors that drove it also reverse (i.e. banks stop lending based on dual incomes and interest rates go back to 1980s high inflation era levels).
Edited by Shadow, 4 Nov 2013, 09:58 AM.
1. Epic Fail! Steve Keen's Bad Calls and Predictions.
2. Residential property loans regulated by NCCP Act. Banks can't margin call unless borrower defaults.
3. Housing is second highest taxed sector of Australian Economy. Renters subsidised by highly taxed homeowners.
4. Ongoing improvement in housing affordability. Australian household formation faster than population growth since 1960s.
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Sydneyite
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Elastic
3 Nov 2013, 07:17 PM
Hey Shads I wasn't really following the Sydney property market in 2003 but could you tell me the reasons for the runup in prices at that time.
Was it an investor led boom or something else?
Cheers
On top of the macro factors Shadow listed, there was a also a stock market boom, the .com / tech boom during which some people made quite a lot of money, both from start-ups / tech companies and also related earnings in the finance sector who helped with and profited from a lit of the .com madness. Plus the dollar devalued quite a bit which I recall resulted in a lot of ex-pats buying up Sydney property (with their Pounds Sterling @ $AU2.50-$3 to the Pound and their $US @ $AU1.50-$2 to the $US). Wages growth and jobs growth had also been very strong in Sydney for the preceding few years. Bascially a "perfect storm" of buyer demand / competition plus ability to bid up prices as a result.
Edited by Sydneyite, 4 Nov 2013, 10:25 AM.
For Aussie property bears, "denial", is not just a long river in North Africa.....
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Shadow
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Here's another very interesting chart... Sydney Mortgage Repayment to Income Ratio since 1994...

Posted Image

This chart uses historical mortgage rates (from here) to calculate the annual mortgage repayments on a Sydney median freestanding house as a proportion of the average single adult income, assuming the buyer borrows 100% of the house price (no deposit).

Amazingly, it would have taken more than 80% of a single adult wage to service a 100% LVR mortgage on a Sydney median house in 2008 (when the average SVR mortage rate hit 9.5%). This has dropped back down to just over 50% today, which is pretty much were it was in 1994.

So in terms of true affordability (mortgage repayments to income), Sydney is back to 1994 levels.

Imagine how high Sydney house prices could go if the mortgage repayments to income ratio rose back to 2008 levels under current interest rates.

Sources... loansense.com.au, residex.com.au, abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/6302.0May 2013

Edited by Shadow, 4 Nov 2013, 11:08 AM.
1. Epic Fail! Steve Keen's Bad Calls and Predictions.
2. Residential property loans regulated by NCCP Act. Banks can't margin call unless borrower defaults.
3. Housing is second highest taxed sector of Australian Economy. Renters subsidised by highly taxed homeowners.
4. Ongoing improvement in housing affordability. Australian household formation faster than population growth since 1960s.
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apex
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Shadow
4 Nov 2013, 11:04 AM
Amazingly, it would have taken more than 80% of a single adult wage to service a 100% LVR mortgage on a Sydney median house in 2008 (when the average SVR mortage rate hit 9.5%). This has dropped back down to just over 50% today, which is pretty much were it was in 1994.

So in terms of true affordability (mortgage repayments to income), Sydney is back to 1994 levels.
Well done shadow all you did is prove Sydney has been severely unaffordable for 20 years, I suppose you think this can go on forever? Idiot.
Edited by apex, 4 Nov 2013, 11:46 AM.
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Sydneyite
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apex
4 Nov 2013, 11:46 AM
Shadow
4 Nov 2013, 11:04 AM
Amazingly, it would have taken more than 80% of a single adult wage to service a 100% LVR mortgage on a Sydney median house in 2008 (when the average SVR mortage rate hit 9.5%). This has dropped back down to just over 50% today, which is pretty much were it was in 1994.

So in terms of true affordability (mortgage repayments to income), Sydney is back to 1994 levels.
Well done shadow all you did is prove Sydney has been severely unaffordable for 20 years, I suppose you think this can go on forever? Idiot.
Well if it's gone on for 20 years what's stopping going on for the next 20 years? Doesn't it make you think there might be other fundamental factors at play that mean the median price / single average income ratio is not the key metric to be looking at re likely price movements from this point? Or at least not the one to look at with the bias of an expectation that it has some "correct" value that it MUST revert to?

Who are the idiots again? Those that remain in denial and ignore reality because it doesn't fit their "mental model" of how the world should work? Or those that recognise reality, act accordingly, and profit as a result? :re:
Edited by Sydneyite, 4 Nov 2013, 12:05 PM.
For Aussie property bears, "denial", is not just a long river in North Africa.....
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Affordable housing is a myth though while land prices, even for tiny blocks, demand a premium like they are 1 acre blocks from yesteryear. A drive for affordability is unfortunately creating bland suburbs.

Driving around suburbs of North West Sydney (Kellyville, Rouse Hill, Beaumont Hills etc) which have been established over the last 10-15 years, these are just wastelands aesthetically. Blocks are so tiny, there is no room for gardens, front yards, backyards or trees.

Where is the choice these days? Do we just want to continue to develop suburbs that are devoid of atmosphere and livable environments? Block sizes need to be rethought or a variety of suburbs need to be planned that offer people the ability to create aesthetic environments.

We continue down the path we have now and we are just rewarding the rich living in established suburbs that got all their bells and whistles in the 70′s and 80′s.

How are you meant to entice people to move further out when the new sub-divisions/suburbs are developed to the bare minimum, with no thought on aesthetic environment?
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Admin
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Quote:
 
Interest rate cut not needed for hot Sydney market

November 5, 2013 - 2:48PM
Toby Johnstone

Though the property recovery remains patchy across Australia's capital cities, experts and agents have joined chorus saying that Sydney, at least, doesn't need another jab in the arm.

"It has been an incredible spring in Sydney but while street records are being broken with almost every sale, other markets such as Adelaide, Hobart and Canberra still need a push along," said L. Janusz Hooker, deputy chairman of LJ Hooker.

In the September quarter house prices across the country rose by 1.9 per cent according to the Australian Bureau of Statistics.

But that growth was largely driven by the Sydney market, which jumped by 3.6 per cent taking its growth this year to 11.4 per cent.

RP Data national research director Tim Lawless said: "The current rate of growth is well below the highs achieved over previous growth cycles and dwelling values across every capital city apart from Sydney remain below their previous peaks."

Records continue to tumble in Sydney's red hot auction market with 747 properties listed for auction last Saturday - the highest number in three years.

Despite the high number of listings the harbour city recorded another strong clearance rate of 81.2 per cent.

"We have a real middle market energy at the moment, the inner west, south and the upper north shore has a lot change over buyers moving through the food chain," said the senior economist at Australian Property Monitors, Dr Andrew Wilson.

The demand for new property in Sydney is also strong.

On Saturday Ben Stewart from CBRE sold $260 million worth of apartments off-the-plan in four hours.

"The market under $1.5 million is very strong," said Mr Stewart.

"There is a shortage of stock in Sydney, that is where the demand is coming from," he said.

Read more: http://smh.domain.com.au/real-estate-news/interest-rate-cut-not-needed-for-hot-sydney-market-20131105-2wyvl.html
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Shadow
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Latest chart for Residex Sydney house prices...

Posted Image
1. Epic Fail! Steve Keen's Bad Calls and Predictions.
2. Residential property loans regulated by NCCP Act. Banks can't margin call unless borrower defaults.
3. Housing is second highest taxed sector of Australian Economy. Renters subsidised by highly taxed homeowners.
4. Ongoing improvement in housing affordability. Australian household formation faster than population growth since 1960s.
Profile "REPLY WITH QUOTE" Go to top
 
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